By Emil Danielyan
The Armenian government reported on Thursday a further sharp increase in its proceeds from the collection of corporate income tax, the main source of widespread fiscal fraud in the country. The Ministry of Finance and Economy said they jumped by 40 percent to 65.3 billion drams ($180 million) last year as a result of continued economic growth and improved tax administration. It had reported a similar increase one year ago.
Still, a ministry report on the execution of Armenia’s 2006 national budget noted that profit taxes paid by local businesses accounted for only 18 percent of the government’s overall tax revenues. The proportion was even smaller in the past. Value-added and excise taxes remain the principal source of government revenues.
Armenian entrepreneurs are believed to routinely underreport their earnings in order to evade the flat profit tax, set at 20 percent, as well as income and social security taxes levied from their employees. Some have gone as far as to post losses. The practice has become less commonplace since the introduction in 2003 of a mandatory turnover tax for companies that claim to operate at a loss.
But despite rising corporate income tax revenues, profits posted by many Armenian firms remain suspiciously low. This is particularly true for companies owned by government-connected millionaire businessmen.
Gagik Tsarukian, Armenia’s reputedly wealthiest tycoon close to President Robert Kocharian, is a case in point. The largest of his businesses, a chain of liquefied and compressed gas stations, is only 84th in the latest rankings of the country’s top corporate taxpayers released by the State Tax Service (STS). The company, Multi-Leon, paid a meager 9.56 million drams ($26,560) in combined profit and payroll taxes in 2006. Its total contribution to the Armenian state budget was an equally modest 500 million drams.
STS data show that Flash, the country’s number one fuel importer owned by individuals close to Defense Minister Serzh Sarkisian, paid 385 million drams ($1.1 million) worth of so-called “direct” taxes. Another Sarkisian-connected fuel company, Mika Trading, paid only 103 million drams.
The figures pale in comparison with the financial contributions of Armenia’s two biggest corporate taxpayers owned by foreign investors: the Zangezur Copper and Molybdenum Combine and the ArmenTel national telecommunications operator. Those totaled 32 billion drams and 20.6 billion drams respectively.
The government’s tax revenues have grown considerably in recent years, but they still made up less than 16 percent of Gross Domestic Product in 2006. Kocharian admitted earlier this month that the proportion is very low even by ex-Soviet standards, accusing the STS and the Armenian customs of lacking the will to address the problem in earnest.
(Photolur photo: Felix Tsolakian, head of the State Tax Service.)